When production slows down in a Canadian auto plant, there’s a certain sound: the parking lot is half full during shift change, there are fewer forklifts operating in the receiving bay, and conversations in the lunchroom become less intense. Employees in Cambridge, Windsor, and Oshawa have already heard it twice, in 2008 and 2020. However, it feels different this time. The economists at TD and BMO are not discussing a recession this time. The word “decade” keeps coming up in their notes as they discuss a structural reset.
This year, TD Economics predicts a 4.3% decline in new car sales and a roughly 4% decline in production. Erik Johnson of BMO goes so far as to describe the decline as “more permanent than temporary.” When a portion of the supply chain is still financed by your bank, you don’t write things like that carelessly. President Donald Trump’s 25% tariff on cars made in Canada, combined with 50% tariffs on steel and aluminum and a federal EV incentive program that quietly ended last year on both sides of the border, is the obvious cause. Simply put, the math that kept the industry together for forty years is no longer valid.
Historically, about 90% of Canadian-made cars have been exported to the south. It now reads like exposure instead of integration. According to Andrew Foran, the TD economist whose recent industry outlook gave rise to the term “the new normal,” Canada’s traditional model, which included just-in-time logistics across the Detroit-Windsor border, deeply integrated supply chains, and frictionless continental trade, has essentially been dismantled. If reassembly occurs, it will not resemble the original. Economists believe that there is no need to wait out this cycle. It’s a configuration that needs to be rebuilt gradually, most likely without the same scale.
On paper, the diversification proposal—selling more cars outside of the CUSMA region—seems plausible. Currently, just 7% of Canadian automobile exports are exported outside of North America. Theoretically, there is potential for growth. However, there are limitations associated with every possible opportunity. Although Foran points out that these discussions are currently bundled with Canada’s submarine procurement program—a peculiar package deal that hasn’t been confirmed yet—the federal government has alluded to production interest from South Korean and German manufacturers. Those conversations might go somewhere. They might not, too. Negotiations for industrial policy seldom proceed as quickly as politicians claim.
The cushion was meant to be the EV pivot. To entice battery manufacturers and assembly facilities, Ottawa promised billions in tax credits and direct incentives. In 2023 and 2024, Stellantis, Volkswagen, and Honda all made news-grabbing announcements. However, demand on both sides of the border was severely damaged by the collapse of consumer EV incentives in late 2025, and Johnson’s BMO note painfully illustrates the math: Canada’s domestic market is too small to support a dedicated EV assembly plant without exports. Every year, the United States purchases about 1.5 million EVs. Canada purchases less than 200,000. The business case collapses in the absence of American clients.
The political tension that underlies all of this is difficult to ignore. After winning a Liberal majority earlier this year and replacing Justin Trudeau, Prime Minister Mark Carney has been remarkably forthright about the stakes. He recently told a group that “hope isn’t a plan,” citing workers in the auto, steel, and lumber industries as “under threat.” Carney strongly objected to U.S. Commerce Secretary Howard Lutnick’s suggestion that Canada might have to pay a “entry fee” in order to begin trade negotiations, which would entail making concessions on provincial prohibitions on American liquor. He maintained that a 25% auto tariff isn’t annoying. It’s against the law.
As you watch this develop, it seems like Canada’s auto industry is being asked to take on more than just a trade dispute. Where cars are made, who gets to make them, and which nations are included in the protected circle are all being rerouted by generations. This summer’s CUSMA review will be significant. The July deadline, according to Canada’s new chief negotiator Janice Charette, is “a checkpoint, not a cliff.” That’s what lawyers say. A blunter one might be useful for a Brampton worker. The industry that reappears on the other side won’t be the one that shaped southern Ontario for fifty years, regardless of how long the reconstruction takes.
